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Article  by   James  A.  Gage

Is There A Housing Bubble?

  After the recent breathtaking frenzy of house-buying and mortgaging, the conventional wisdom is that there must be a bubble. "What goes up must come down" says the adage. You look at houses that have quintupled in price and you wonder if this is a bubble, a craze, like the seventeenth-century tulip frenzy in Holland when the growers bid up the price of one tulip bulb to half the price of a stout ship.

  "Bubble" said the Wall Street Journal, Business Week, Forbes, Barron’s, Financial World and Money. "No boom lasts forever," warned Forbes. "All such obsessions have ended in crashes," warned Business Week.

  Could there be a crash in property values? At least, there could be a shakeout of foolish speculators. Obviously, if someone buys ten condos and pyramids them, using unrealized paper profits from one to borrow for a down payment on the next, that speculator can get foreclosed. If rents don't cover debt service, if taxes go up faster than cash flow, if the turnover game slows down, speculators are vulnerable and so are property prices. Bidders pull back when they suddenly see plenty of property for sale.

  A crash in one town doesn't necessarily cause a ripple ten miles away. There is no central market for real estate, as there is for stocks and commodities, where the whole country reads the same price and reaches for a phone. Moreover, in most places, speculators do not own ten condominiums.

  In central markets, falling prices trigger selling if people believe prices will go still lower. But the current generation of homeowners isn't likely to sell, even when prices dip; they are more likely to hold on and wait, because they need a place to live. There are 66 million houses owned by the people who live in them-and if too many had to sell at sacrifice prices, any government that let it happen wouldn't stay in office much longer.

  Another reason why I can't see a crash: prices are set by supply and demand just like stock prices. The pent-up demand for housing is enormous and makes itself felt wherever possible, because this demand far outruns the supply. Look around and you see few empty houses and few vacancies in apartment buildings.

  This demand must grow due to the following: 1) More than forty million people will reach their thirties in this decade, the largest such group in U.S. history to enter the household-forming age in one period. 2) Married or single, those thirty-year-olds don't want to live with their parents. They want houses or apartments-in most cases houses, if possible. 3) it is still the American dream to own your own Home. Even high interest rates and a major recession won't completely stifle their demand.

James A. Gage. is a best-selling author and internationally-known expert in Lease Purchase, AKA Rent To Own Real Estate Investing. He Mentors One-On-One throughout the U.S. and across the world. James is also director of the Gage Consulting Group, LCC 800 Main Street, Suite 104 Holden, MA 01520 .

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